With House and Senate financial reform bills evolving rapidly behind the scenes, Senate Banking Committee Chairman Phil Gramm divided the insurance industry's opposition to his plan Thursday.
Insurance companies praised Sen. Gramm for compromises negotiated late Wednesday, while insurance agents accused the Texas Republican of backing off a deal that would have won their support too.
Meanwhile, House Banking Committee aides have reached an agreement to blend proposals by Chairman Jim Leach and ranking Democrat John J. LaFalce, sources said.
The bipartisan plan, which House Banking is scheduled to vote on March 4, reportedly moves closer to Rep. LaFalce's bill in two controversial areas. National banks would be permitted to underwrite securities and conduct merchant banking activities in operating subsidiaries, and banks would need to have-and maintain-a "satisfactory" or better Community Reinvestment Act rating to merge with insurance companies or securities firms.
But key provisions of the Leach plan would also survive. Bank sales of insurance would be guided by restrictions agreed to by the banking and insurance industries last year. Also, commercial companies could not buy unitary thrifts, and new unitary holding companies could not engage in nonfinancial activities.
"Things are moving toward resolution," a House Banking spokesman said, but first lawmakers "have to see the language and agree to it." The bill was expected to be completed by Friday, he said, with copies made public Monday.
On the Senate side, the insurance compromise Sen. Gramm is crafting is expected to define which existing financial products are insurance. Once defined as insurance, banks providing those products would have to follow the same state laws as insurance companies.
Furthermore, states could impose limits on troubled banks to prevent them from jeopardizing the financial health of sister insurance companies. The deal also is expected to instruct judges to grant equal weight to arguments made in court by state insurance commissioners and federal banking regulators.
During Sen. Gramm's third hearing on the bill this week, James D. Ericson, the president and chief executive of Northwestern Mutual Life Insurance Co., Milwaukee, testified that life and property and casualty insurers support the bill.
"While there remain a few provisions that the industry feels need further revision, we believe that on balance this bill should be brought to the Senate floor for consideration without delay," said Mr. Ericson, who is also chairman of the American Council of Life Insurance.
After insurance companies praised Sen. Gramm, insurance agents blasted him.
Scott A. Snider, a lawyer for the Independent Insurance Agents of America, testified that agents had reached a deal with Sen. Gramm's aides that resembled the House bills' tighter insurance provisions only to have the Texas Republican reject it 15 minutes before Thursday's hearing. As a result, Mr. Snider said, the agents' group would "vehemently oppose" Sen. Gramm's bill.
Sen. Gramm responded that he had not rejected the compromise and planned to meet with representatives of the agents Friday morning before releasing a final version of his bill.
The banking industry's position was unclear Thursday. Edward L. Yingling, chief lobbyist for the American Bankers Association, said he could not comment without seeing the final language.
Robert W. Gillespie, chairman and CEO of KeyCorp, praised Sen. Gramm's original insurance provisions because they take a more free-market approach. Mr. Gillespie, who is also vice president of the Bankers Roundtable, described the Gramm bill as "very positive" overall but complained about limits on the size of banks that could conduct new powers through operating subsidiaries.
He also suggested that controversial CRA issues be handled in separate legislation. "We do not believe CRA reform issues should derail financial modernization," Mr. Gillespie said.
The Senate Banking Committee is scheduled to vote on financial reform March 3.
